By Gary Eason BBC News Online education staff

The way universities in England are paid for taking students from disadvantaged backgrounds is to be changed, partly to stop them "postcode chasing".

Although the funding was intended to recognise costs and not to act as an incentive, in some cases it has led to 'postcode chasing'

Funding council

The council which allocates funds has also decided that it has been allocating money on a false presumption about how likely students are to drop out of university.

It is proposing to modify the "widening participation premium", which is part of the effort to increase the number of youngsters going into higher education.

The premium is supposed to recognise the additional costs universities incur when they recruit from parts of the country where people are less likely to go to university.

The Higher Education Funding Council for England (Hefce) said this was because students from poorer backgrounds were more likely to drop out, and so needed more support than others - which made them more expensive.

Dropout rate

But it now says that "although the funding was intended to recognise costs and not to act as an incentive, in some cases it has led to 'postcode chasing' in the sector."

In other words, institutions have been actively recruiting from disadvantaged areas just to get the extra money.

The funding council classifies students' postcodes according to 160 so-called "geodemographic clusters" using data from a private company, Super Profiles.

These grade the rate of take-up of higher education by 18 to 20 year olds in six bands - from less than half average participation, to above average.

The information is not published.

Secret data

The shadow education secretary, Damian Green, has said he is "astonished" at this secrecy, given that public money is involved.

Officials at the funding council say they believe some universities are also buying the data.

They say this is fine if admissions departments are using it to analyse their recruitment strategies after the event.

But if they are using it to target recruitment it would not be "wise" - and might even be illegal on the grounds of discrimination.

Consultation

But what is more, the underlying assumption about postcodes has turned out to be wrong.

The funding council has re-examined the dropout figures and now says that, although there is a relationship between the location of students' homes and the likelihood of dropping out, it is "indirect".

The direct relationship is with a student's age and previous educational experience.

There is "a strong link" between previous educational experience and family background, so the postcode has been a reasonable indicator, the council says.

"However, a premium based on the more directly relevant factors would seem more logical."

It is therefore consulting the higher education sector on what to do.

Loopholes

One of the questions is whether funding should in future still relate to students' home postcodes to an extent, as well as to their ages and previous achievements.

"However, this may still encourage some form of 'postcode chasing'," the council says, and would not necessarily target the money at those students who were less well prepared for higher education.

One of the universities that has been most successful at attracting students from different backgrounds is Manchester Metropolitan, whose widening participation officer, Karen Duggan, is fully in support of Hefce's proposals.

She says the postcode approach always had loopholes "because obviously there are affluent pockets in all areas".

"Age and previous educational achievement would be a much better indicator," she agreed.

Condition of funding

She has been developing her own indicators, working with schools and local education authorities, using such things as entitlement to free school meals and families' take-up of grants for school uniforms.

All universities will have to come up with new action plans by the summer of 2003 on how they propose to widen the range of students they take in.

"The release of widening participation funding will continue to depend upon the submission of satisfactory targets, and satisfactory progress towards those targets," the council says.

Not only that but it could become a condition of universities' being given their main funding that they have submitted strategies for widening participation.

Another idea is to focus the extra cash on universities with the highest proportion of students from poorer backgrounds.

The drawback which the council foresees in that approach is that some universities might get nothing - and "might consider themselves 'excused' from the need to widen participation."